AAPL: Onslaught of Tabs Threatens iPad, Helps BRCM, NVDA, Says Avian

By Tiernan Ray

Avian Securities director of research Avi Cohen today relates that production of various tablet computers appears to be on the rise, which could cause some discomfort for Apple‘s (AAPL) iPad sales, hurt Microsoft‘s (MSFT) profit margin, and help sales of chips by reflectchip makers Broadcom (BRCM) and Nvidia (NVDA).

Cohen’s note cites multiple unnamed, unspecified sources, and claims that the “build plans” for the “Nexus 7” tablet computer developed by Google (GOOG) and being built by AsustekComputer (2357TW), “have been raised twice over the last 3 months and are now above 8m units vs previous estimates of 6m.”

Moreover, Amazon.com (AMZN) “increased the estimated follow-on orders for its new PaperWhite,” referring to the newest Kindle e-book reader, introduced next month. Samsung Electronics (005930KS) is “increasing the component sourcing” for the “Galaxy Note 10.1,” the tablet the Korean giant unveiled in August that runs Google’s Android software.

Microsoft’s plans for its “Surface” tablet computer, which was shown off this summer and has yet to go on sale, “are now approaching 10 million units,” they write.

And perhaps most intriguing, “We also are getting specific feedback around numerous 2-5m unit generic Android tablet builds that will be available for the holiday season at price points closer to $125.”

The authors write that they can only assume the rising production plans are “based on positive demand trends” given an otherwise weak consumer environment.

Cohen concludes, for one, that Apple now faces greater challenges even as it plans to introduce an “iPad Mini,” according to various reports. Writes Cohen,

Clearly the improved penetration of non AAPL tablets is a negative for the overwhelming incumbent in the space. In fact it should be argued that AAPL’s lower end iPad Mini introduction was reactionary to expected low end non AAPL tablet penetration and a sign they themselves were worried about it [...] The Mini introduction will now be crowded by numerous other tablet launches – a potential negative. Any success by others or snag around iPad software/functionality (purple hue in pictures, maps, chipping paint) will further flame concerns around AAPL share erosion. Most importantly, we wonder how the slew of sub $150 tablets will affect overall sales this holiday season, even with the launch of a cheaper AAPL option.

Success by Microsoft, moreover, with Surface, will hurt margins:

Although the kneejerk reaction is that a Surface success stems MSFT’s losses in the consumer segment, we point out that 8m units sold for $299 or an incremental $2.4B in sales with a 0% or negative GM, will reduce overall GMs by ~300 bps.

Overall, lower-priced tablets shipping in higher volume will harm PC sales, writes Cohen: “More tablets at lower price points will directly equate to fewer, low end, notebook sales and a continuation of the negative relative PC trends we have witnessed the last year.”

But for Broadcom and Nvidia, it’s all good. Nvidia’s “Tegra” application processor is in the Nexus 7, and in at least one version of Surface. Hence, “given multiple Android and Windows RT tablet design wins as well as 30 smartphone designs (Acer, Asus, Coolpad, Fujitsu, HTC, Lenovo, LG, SONY, Toshiba, ZTE etc), our Tegra estimates of $580 M for F13 (C12) are too low.”

And success by Nvidia may directly help Broadcom: “As an aside, we note that the ASPs for BRCM connectivity for a device based on NVDA vs QCOM is $0.50-$1 higher, since QCOM applications processor integrates GPS while NVDA does not. Any gains by NVDA are incrementally more positive for BRCM.”

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There are 12 comments

OCTOBER 4, 2012 2:21 P.M.

JP wrote:

@Tiernen -- the ending paragraph seems to repeat the quote the about Nvidia instead of giving one about BRCM.

OCTOBER 4, 2012 2:24 P.M.

Tiernan Ray wrote:

JP: You're right. My apologies. The post has been revised with the actual detail about Broadcom.

OCTOBER 4, 2012 2:31 P.M.

ShortSelling wrote:

Rather than attempting to manipulate Apple stock, why not wait for
1) iPad mini announcement;
2) reviews of all these new tabs (Samsung's tab has already been slammed for cheap components);
3) Q4 sales figures ( assuming Amazon, Samsung or Microsoft will be willing to share actual sales).

By the way paper white is an ereader.

OCTOBER 4, 2012 3:21 P.M.

meh wrote:

seems like a CLONE of articles I read about iPOD years ago:

".... the iPod will face significant challengers and will fail to gain market share. Sony with vast music exerience selling the iconic Walkman together with other players like Toshiba, Sae Han, iRiver, Creative Nomad, Archos, Sandisk, Phillips, Samsung, not to mention Microsoft's highly anticipated upcoming Zune will quickly erode iPod sales. Competitors offer a vast array of features including radio, have established retail channels and many are significantly cheaper than the iPod ... ".

meh

OCTOBER 4, 2012 3:52 P.M.

Bill wrote:

I have had it with Cook and this incompetent, useless, and silent management team. They BLOW at defending shareholders and the share price and as long as they are drinking their coffee and wine in la la land, the shareholders can fend for themselves. A completely Useless and Lost Management Team. Their Act is F old and their mystique is no longer. Hang your turtlenecks up and put them away. The magic is gone and so is this stock. Sell. sell, sell

OCTOBER 4, 2012 4:09 P.M.

Ron wrote:

It's time for Tim Cook to go. He isn't a CEO. He can stick to the parts business,, but Apple needs a new CEO. This guy is a pussy and is lost.

OCTOBER 4, 2012 4:13 P.M.

frederic wrote:

@Bill

"I have had it with Cook and this incompetent, useless, and silent management team. They BLOW at defending shareholders"

really? notice that aapl has gone up 60% in the past year? i.e more than msft has increased in 10 years and more than Google has since android in 2008.

every quarter Cooks team has increased profits over year ago quarter.
Cook speaks to investment analysts (unlike Jobs) and he started dividends.

OCTOBER 4, 2012 4:28 P.M.

Hannibal the cannonball wrote:

So the tablet market is going to cannibalize and apple will end up on top as usual.

OCTOBER 4, 2012 4:30 P.M.

arim wrote:

we have had low cost android and amazon tablets competing against the Ipad for approx. two years now ...and it has been no competition so far, even at iPad's higher price..so with a larger mini iPad coming at a lower than the regular iPad price Cohen thinks Apple should be worried? really? he is forgetting that in the end it is all about kids and adults/parents liking the Apple integrated "ecosystem" linking all Apple devices...this is a critical difference and advantage between iPad and other tablets, not the price difference....Apple's not in the business of selling "devices" for heaven's sake ..it's in the total experience and ease-of-use business, delight, integration and and ease-of-use trumps all else business... it is the other guys who are just in the "devices" business...wait for 2 quarters once Apple supple chain situation is smoothed out, and then get worried. .

OCTOBER 4, 2012 5:38 P.M.

Anonymous wrote:

The beginning of the end for Apple

OCTOBER 4, 2012 8:13 P.M.

John wrote:

We see the same stories over and over again, Apple is doomed blah blah. I'm sure the Surface tablet will take a huge bite out of iPad sales just like Windows phones will hurt iPhone sales. Yeah right. They will sell a few of them and most will end up paper weights like my Microsoft Zune which somebody gave me. Remember the Zune/iPod killer? LOL!!!

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.